The New Zealand Government could have faced an international law suit for breaching its free trade agreement with China if it had declined the Shanghai Pengxin purchase of the Crafar farms, University of Auckland law professor Jane Kelsey believes.
Last week, Land Information Minister Maurice Williamson and Associate Minister of Finance Dr Jonathan Coleman accepted the recommendation of the Overseas Investment Office (OIO) to grant consent to Milk New Zealand Holding Ltd (Milk New Zealand), a subsidiary of Shanghai Pengxin Group Co Ltd, to acquire the 16 Crafar farms.
When China's politicians warned New Zealand politicians last year that the agreement was a "two-way street", it was clear they were referring to their rights as foreign investors under the so-called "trade" treaty.
That view was reiterated in Shanghai Pengxin's application to the OIO, Prof Kelsey said.
The Government could not treat applications from Chinese investors differently from similar applications from other countries' investors under what was known as the "most-favoured nation" of MFN rule.
Shanghai Pengxin's application pointed to numerous purchases of farmland by investors of other nationalities, and claimed that rejection of its otherwise well-founded application would amount to anti-Chinese discrimination, she said.
The Government would have "pulled out all the stops" to avoid a Chinese investor supported by the Chinese state taking it to international arbitration for breaching the FTA, even if it felt it was on strong legal ground.
"Such a dispute would have huge ramifications for New Zealand's diplomatic and economic relationship with China.
"It would also cast a spotlight on the even greater risks of the more extensive foreign investor rights proposed for the Trans-Pacific Partnership Agreement (TPPA), a debate that the Government is desperate to avoid," Prof Kelsey said.
Federated Farmers national president Bruce Wills believed OIO rules must be applied "without fear or favour".
"We're under no illusion the OIO's decision will not be universally popular among farmers, let along the public.
"The OIO needs to follow its own rules and processes without fear or favour. Overseas investment by opinion poll risks spooking overseas investors, who not only fund government deficits, but mortgages too."
Sir Michael Fay's legal challenge would put overseas investment rules and processes "through the judicial wringer".
"It might provide a much-needed acid test that, in the long run could add confidence to OIO processes," Mr Wills said.
The receivership of the former Crafar farms had raised more than a few questions from farmers about the way insolvency was managed.
"Since 2009, 150 dairy farms have been sold nationwide, with most likely to have been sold to Kiwis. In the three months to December 2011, 16 dairy farms were sold in Waikato and the Bay of Plenty alone.
"This tells me that all the former CraFarms could have been sold off individually and to Kiwis in all likelihood.
This has been a saga that has gone on for far too long because individual farmers were seemingly locked out unless they could buy the lot."
That was something that Federated Farmers did not want to see repeated, he said.
